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The Red Star Of China's Economic Czar Is Rising


International Outlook

THE RED STAR OF CHINA'S ECONOMIC CZAR IS RISING

Chinese state-company managers listened glum-faced as Vice-Premier Zhu Rongji lambasted them on TV recently. The 68-year-old economic czar bluntly told them they needed to slash bloated workforces, manage more effectively, and drum up profitable new products. It was classic Zhu. "In a meeting," says a Beijing economist, "Zhu blames everyone."

Zhu's abrasive style hasn't earned him many friends. But the results he is achieving are suddenly making him a hot contender to replace Premier Li Peng, who is due to step down in 1998. Financial and tax reforms promoted by Zhu are helping China to manage the economy better and avoid the debilitating boom-or-bust cycles that dogged it in recent years. Annual growth is now a more sustainable 9.7% rather than the sizzling 13% of 1993. And inflation has tumbled to single digits from a peak of nearly 22% in 1994, while central government tax revenues have soared to record levels. Zhu, says conservative economist Hu Angang of the Chinese Academy of Sciences, "is the best candidate."

Zhu, fluent in English, would help create warmer ties with the U.S. Unlike Li Peng, Zhu is not tainted by involvement in the Tiananmen massacre. As mayor of Shanghai at the time, he avoided violent reprisals against protesters. His direct style appeals to foreigners. "[They] feel he's someone they can do business with," says a Western diplomat.

STRONG ARM. His position is improving as reforms take hold, but Zhu has powerful detractors. Anticipating the fall Communist Party Congress, some observers say, President Jiang Zemin is opposing the energetic Zhu because he doesn't want to be upstaged on the global scene. Jiang would prefer Vice-Premier Wu Bangguo, 56. And the outgoing Li Peng favors Vice-Premier Li Lanqing, who is in charge of foreign trade.

Zhu's detractors dismiss his reputation as a reformer, seeing him as a heavy-handed central planner. Too often, say local critics, Zhu resorts to strong-arm methods such as choking off funding from state agencies and banks rather than letting the market take its course.

All the same, Zhu, who was long regarded as a leader without a power base, is gaining a solid backing among constituencies ranging from conservative party elders to technocrats. The elders, though no longer in official posts, have clout in key appointments because of their revolutionary credentials. Many favor Zhu, says one analyst, because "they want to maintain the monopoly power of the [Communist] Party, and to do that they need healthy economic growth."

Technocrats like his reforms, too. Although Zhu stopped short of forcing deadbeat state companies into bankruptcy, for fear of social unrest, he is trying to wean state companies off cheap loans. Zhu also forbade banks to make high-risk loans in the property and stock markets. "For the first time, someone said `no' to the demand from state enterprises for cheap credit," says Shan Li, Goldman, Sachs & Co. executive director in Hong Kong.

Zhu has also nursed China's foreign-exchange reserves to more than $100 billion in 1996, even as its renminbi currency strengthened against the U.S. dollar. "His contribution is like [Alexander] Hamilton's in the U.S.," says the Academy of Science's Hu. "What he has done is lay the infrastructure for a modern economy."

If Zhu succeeds in becoming Premier, it will be largely on merit. His achievements are impressive, but the big question is whether they will win over enough of his many critics.By Joyce Barnathan in Hong Kong and Dexter Roberts in Beijing EDITED BY JOHN TEMPLEMANReturn to top

THE PRICE OF HEBRON PEACE

Making the Middle East peace process work--following the Jan. 15 deal cut between Israeli Prime Minister Benjamin Netanyahu and Palestinian leader Yassir Arafat--will require a major effort by the Clinton Administration. Under the 1995 Oslo II agreements, Washington acted mainly as mediator. But the U.S. has pledged to be a full guarantor of key parts of the Hebron accord, which could carry a steep price.

Netanyahu and Arafat will each visit Washington soon. Both will expect a generous payoff. The U.S. has already agreed to rebuild Hebron's Street of Martyrs. But the U.S. has made other promises set out in confidential notes attached to the accord. Special Envoy Dennis B. Ross calls them a "roadmap" for the region's future.

Because the Hebron accord would have been impossible without U.S. guarantees, the precedent has been set for an active American role in brokering a deal between Israel and its hardline neighbor Syria. That could set the stage for friction between the White House and Congress, especially if U.S. troops are required as peacekeepers.

Netanyahu and Arafat both emerge much stronger. The Israeli leader may not be able to win over hard-right members of his cabinet, but signing off on Hebron signifies a shift to the center. In Israel's new system of direct elections for Prime Minister, that could be crucial to Netanyahu's reelection bid in 2000. And Arafat's sophisticated negotiating will boost his domestic popularity. It's now the U.S. that could be in for a tough time.By John Rossant in Jerusalem EDITED BY JOHN TEMPLEMANReturn to top


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